Citigroup's revenue and profit dip, but beat views

ChristinaRexrode

Citigroup Inc. reported earnings that beat analysts' expectations as the New York bank benefited from strong demand in its investment banking and trading businesses.

The lender run by CEO Michael Corbat reported a lower profit than the prior year, but one that was strong enough to send shares 2% higher in morning trading. Citigroup's third-quarter net income of $3.84 billion, or $1.24 a share, was 11% lower than the $4.29 billion, or $1.35 a share, reported in the same period of 2015.

Revenue fell 5% to $17.76 billion from $18.69 billion a year ago. Both figures beat the expectations of analysts, who had predicted profit of $1.16 per share on revenue of $17.36 billion.

Michael Corbat, who on Sunday will mark four years as the bank's chief executive, guided Citigroup through one of its most tumultuous periods, including regulatory and legal reprimands and a lingering image as the poster child of the financial crisis. The bank has stitched up many of those lacerations, and this year it was the only firm to earn passing grades on the living wills, an important regulatory test for the largest U.S. banks.

Citigroup now needs to pivot to showing investors it can improve straggling shareholder returns -- a goal that Mr. Corbat and other executives say is a priority. The third quarter showed work remains on that front: The bank's return on average common equity was 6.8%, down from 8% a year ago.

In a statement, Mr. Corbat said the bank is "committed to consistently increasing the amount of capital we return to our shareholders," and he noted that Citigroup had decreased its overall share count and improved tangible book value.

In a call with reporters, Chief Financial Officer John Gerspach said that shareholder returns have been hurt partly because of bank capital tied up in deferred tax assets. He said those returns would also improve as the bank grew core businesses and became more efficient, but didn't give a timeline.

Trading revenue, excluding an accounting adjustment, rose 16% to $4.13 billion from $3.57 billion a year ago. That was better than what Mr. Gerspach predicted last month, when he said he expected trading revenue to be up mid-single digits from a year ago.

Mr. Gerspach said Friday that trading activity had picked up as clients took positions on the direction of interest rates and Fed policy. "The nice thing about the Fed is that depending on who spoke, you got a different view of which way rates were going," Mr. Gerspach said.

Still, Citigroup didn't perform as well in trading as J.P. Morgan, which also reported results Friday that included a 33% gain in trading revenue. Part of the problem at Citigroup was the stock trading unit, where revenue fell 34%, though that was partly because of a one-time gain in that unit a year ago. Revenue from the much larger bond trading unit was up 35%.

Citigroup, traditionally a bond powerhouse, has been trying off and on for years to expand its stock-trading unit but with little success. Mr. Gerspach said Friday that Citigroup had invested in people and technology for the unit and that it would take time to improve results, particularly given the overall malaise in stock trading. "I grant that we're not particularly pleased," Mr. Gerspach said. "But this is a process."

At Citigroup's investment banking business, where bankers advise companies on capital raising deals, mergers and acquisitions, revenue also rose 15% to $1.09 billion from $944 million a year ago. That was fueled by an increase in debt underwriting that made up for a drop in equity underwriting.

Revenue was up slightly in both of Citigroup's two main units: the consumer bank and the business that deals with institutional clients. Revenue was down in Citi Holdings, the unit where the bank stores assets that it wants to get rid of, which led to the overall revenue decline.

Mr. Gerspach also said the bank has reviewed its sales practices but hasn't identified the types that led to a $185 million penalty at Wells Fargo & Co. last month.

When asked whether a Donald Trump presidency would be bad for Citigroup's business in Mexico, Mr. Gerspach said Citigroup would work with either party that wins in November.

"We're not particularly vexed either way," he said.

This was the first full quarter to include results from Citigroup's credit-card partnership with Costco Wholesale Corp., which was completed in late June. Revenue from Citi-branded credit cards in North America was up 15%.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.